In recent years, the corporate financial study come a new trend, manyresearchers began to make political connection into corporate financial study to widenthe research area. They have achieved a lot of crossover study results about thecompany’s financial and political connection, in which show that both in developedand emerging market countries,’s political connection is widespread.Due to the traditional culture of our country and ancient feudal system, politicalconnection between the government official and businessman has always existed.Now China is the biggest developing country in the world, and is in the reform ofmarket economy transformation, whether it has the political connectionwould result in different effects to enterprise’s value. Instead of large corporate, smalland medium-sized enterprise (SME) must deserve more attention, it has been themajor subject of development in China and also the most dynamic part, butSMEs face a long-term constraint and not commensurate with the status. Thedevelopment of SMEs has been constrained with financing, access restrictions,unprotected of property right, lack of political status. Above all the factors seriouslyhindered the development of SME. So SMEs have impulse in establishing politicalconnection which can be seen as a kind of “non-system protection” to increase thecorporate value. The study of this phenomenon has very important practicalsignificance.This paper firstly summarized the former domestic and international study ofthe influence of political connection on the enterprise value, and then defines theconcept and measure methods of political connection, and further analyzes themechanism of how political connection impact enterprise value. On the basis ofabove analysis, through2007-2010all the small and medium board listed companies in Shenzhen stock exchange as a sample, this paper empirically analysis the impactof political connection, including two components which is state-owned equity andpolitical relevance, to the value of small and medium enterprise board. Overall, thispaper have indicated that there is a negative relationship between whether theenterprise has political connection and enterprise’s Tobin’s Q value with SME boardlisted companies, but not significant. However, looking from the respective part ofpolitical connection, there is a significant negative correlation between whether isstate-owned and enterprise’s Tobin’s Q value. Also the political relevance whichcompanies has the initiative to set up has significant positive correlation withenterprise’s Tobin’s Q value with SME board listed companies. In a word, excessivegovernment intervention can damage the enterprise value, and SMEs who sought”political protection” result in value ascension.In addition, this paper verified whether the political connection can helpbusinesses ride out the storm after the financial crisis in2008. The result indicates:in panel A, increasing rate of the Tobin’s Q can well explained by whether it haspolitical connection, and in panel B, there is a negative relationship between whetherthe enterprise has political connection and decreasing rate of Tobin’s Q. This resultmay arise from that large-scale have caused the government controlledmore resources, then the enterprise has the political connection has a very significantfight recession, promote growth effect.
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